James Lovick

Sterling Outlook Uncertain on Weaker Growth Outlook

This Pound Sterling forecast looks at discusses fears that the Pound could come under considerable pressure if the economy is rapidly slowing down. The below table shows the market movements for a number of currency pairings yesterday:

Currency Pair

% Change

Difference on £200,000

GBP

EUR

0.7%

€1890

GBP

USD

0.6%

$1620

GBP

AUD

0.55%

$2060

Bank of England Expected to Pause on Rate Rise

The pound continues to remain on the back foot after that blow dealt on Friday when UK Gross Domestic Product (GDP) fell to a five year low at just 0.1%. There are now fears that the pound could come under considerable pressure if the economy is rapidly slowing down. The cold weather front is a major factor for the drop in GDP but some commentators are pointing to Brexit as well as austerity for the disappointing performance.

The weak data gives the Bank of England a very good reason to not raise interest rates and the chance of one happening in May is now looking highly unlikely. This marks a turning point as those interest rate expectations are now being put back.

The earliest that the bank will now hike is expected to be in August but it’s not inconceivable that the next hike could actually arrive in 2019 which see the the Pound fall further.

This morning sees UK manufacturing Purchasing Managers Index data for April. A higher number today would be a relief for the markets and may alleviate some of those fears that Britain could be approaching a recession. UK mortgage approvals are also released at 09:30 but tomorrow’s construction PMI could prove to be the most important. Considering the sharp drop seen In the sector last month and recent attention to the weak GDP data then a spike higher could see a boost for the pound. The same is true for the services sector on Thursday. Clients looking to secure currency may wish to plan around these data releases as there is likely to be volatility around them.

UK Politics – Brexit Latest

UK Prime Minister Theresa May will hold a Brexit cabinet meeting tomorrow amidst tensions that have been escalating on whether Britain should remain in a customs union with the EU. Brexit negotiator Oliver Robbins has put forward a proposal that that will keep Britain in a customs partnership with the EU something that is reportedly favoured by the Prime Minister but not the majority of the cabinet. Another phrase we are going to hear more of is “max fac” or maximum facilitation. This is another proposal that would use technology to reduce the need for border checks. The issue that Theresa May has is that she does not command a large enough majority in the House of Commons to safely push through key votes. She also relies on the DUP for their support. Only last week DUP MP Nigel Dodds said that the party was prepared to let the government collapse over the issue of the Irish border.

The House of Commons voted last week on whether the UK should stay in the customs union with the EU. Although the vote was not legally binding it does now set into motion a sequence of events that could ultimately lead to the fall of Theresa May as well as the possibility of the government being toppled.

The vote has highlighted the strength of the opposition in Parliament to avoid a so called hard Brexit and challenges Theresa May’s red line of leaving the customs union. A meaningful vote on the matter is expected later this month when the EU withdrawal bill returns from the Lords and it has been suggested that this vote could become a confidence vote. A confidence vote if lost would allow the government a period of 14 days to win the vote but if it failed to do so then we would be entering into another general election. If this were to happen this would be third UK general election in four years. The pound could be set for an extremely volatile period depending on how events unfold and there is likely to be considerable weakness if the prospect of a general election becomes a reality.

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UK

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Exchange rates on this page are interbank rates and indicate where the market is trading to show the performance of a currency pair. They are not indicative of the rates which we offer. The information on this web site is provided free of charge for information purposes only. It does not constitute advice to any person on any matter. Foreign Currency Direct plc. ("FCD") makes every reasonable effort to ensure that this information is accurate and complete but assumes no responsibility for and gives no warranty with regard to the same.